Problem 4-1 Parent Company Entries, Three Methods
On Jan 1,2004, Perelli Company purchased 90,000 of the 100,000 outstanding shares of common stock of Singer Company as a long term investment. The purchase price of $4,972,000 was paid in cash. At the purchase date, the balance sheet of Singer Company included the following:
Current Assets 2,926,550
Long Term Assets 3,894,530
Other assets 759,690
Current Liabilities 1,557,542
Common stock, $20, par value 2,000,000
Other contributed capital 1,891,400
Retained earnings 1,621,000
Additional data on Singer Company for the four years following the purchase date are 2004 2005 2006 2007
Net Income 1,997,800 476,000 (179,600) (323,800)
Cash dividends paid 12/30 500,000 500,000 500,000 500,000
Prepare journal entries under each of the following methods to record the purchase and all the investment-related subsequent events on the books of Perelli Company for the four years., assuming that any excess of purchase price over equity acquired was attributable solely to an excess of market over book values of depreciable assets (with a remaining life of 15 years) Assume straight line depreciation.
D. Perelli uses the cost method to account for its investment in Singer
E. Perelli uses the partial equity method fo account for its investment in Singer
F. Perelli uses the complete equity method to account for its investment in Singer.
The solution discusses Parent Company entries three methods.